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Did Norway Gain from the 1979-85 Oil Price Shock?

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    Macroeconomic effects of the high oil prices in the period 1979-85 for the Norwegian economy are considered. An alternative low oil price scenario is developed and effects of the oil shock are calculated as the deviation between actual history and the counterfactual base. International effects based on a world model are fed into a domestic model to analyse consequences for the Norwegian economy. Without imposing any changes in fiscal policies, negative effects from lower foreign demand and higher interest rates are dominating. However, as a major oil exporting country, we argue that the high oil prices spurred a substantial increase in Norwegian public spending. Effects of a more expansionary fiscal policy, based on a relatively conservative spending strategy, are shown to more than outweigh the negative initial impact on GDP. Possible outcomes for the business cycle development are also studied

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    Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 210.

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    Date of creation: Feb 1998
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    Handle: RePEc:ssb:dispap:210
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    1. Knut Anton Mork & Oystein Olsen & Hans Terje Mysen, 1994. "Macroeconomic Responses to Oil Price Increases and Decreases in Seven OECD Countries," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 19-36.
    2. Favero, C.A. & Pesaran, M.H., 1992. "Oil Investment in the North Sea," Cambridge Working Papers in Economics 9204, Faculty of Economics, University of Cambridge.
    3. Biorn, Erik & Jensen, Morten & Reymert, Morten, 1987. "KVARTS - a quarterly model of the Norwegian economy," Economic Modelling, Elsevier, vol. 4(1), pages 77-109, January.
    4. Ben S. Bernanke & Mark Gertler & Mark Watson, 1997. "Systematic Monetary Policy and the Effects of Oil Price Shocks," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 91-157.
    5. Darby, Michael R, 1982. "The Price of Oil and World Inflation and Recession," American Economic Review, American Economic Association, vol. 72(4), pages 738-51, September.
    6. Ray Barrell & Knut A. Magnussen, 1996. "Counterfactual Analyses of Oil Price Shocks using a World Model," Discussion Papers 177, Research Department of Statistics Norway.
    7. Burbidge, John & Harrison, Alan, 1984. "Testing for the Effects of Oil-Price Rises Using Vector Autoregressions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(2), pages 459-84, June.
    8. Barrell, Ray & Pain, Nigel & Hurst, Ian, 1996. "German Monetary Union: An historical counterfactual analysis," Economic Modelling, Elsevier, vol. 13(4), pages 499-518, October.
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